Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

SECOND CIRCUIT AFFIRMS ORDERS ENJOINING ARBITRATION, HOLDING BROAD FORUM SELECTION CLAUSE SUPERSEDES FINRA ARBITRATION RULE

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The Second Circuit affirmed two cases in which financial services firms had succeeded in enjoining FINRA arbitrations that were initiated against them by public financing entities. The court held that in each case, the FINRA arbitration rules were superseded by broad forum selection clauses in broker-dealer agreements requiring “all actions and proceedings” related to the transactions between the parties to be brought in court. The court noted that the interplay between forum selection clauses and the FINRA arbitration rule has been considered by the Ninth and Fourth Circuits, with the former holding that the forum selection clause controls and the latter reaching the opposite conclusion. In the Second Circuit, the court explained, “an agreement to arbitrate is superseded by a later-executed agreement containing a forum selection clause if the clause ‘specifically precludes’ arbitration.” The court found that the language “all actions and proceedings” fit that description, notwithstanding that the clause did not specify arbitration. Goldman Sachs & Co. v. Golden Empire Schools Financing Authority, Nos. 13-797-cv, 13-2247-cv (2d Cir. Aug. 21, 2014).

This post written by Michael Wolgin.

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CALIFORNIA LEGISLATION REGARDING CREDIT FOR REINSURANCE SIGNED INTO LAW

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On September 16, 2014, Assembly Bill No. 2734 (“AB 2734”) was signed into law. AB 2734 authorizes trusteed surplus to be reduced to not less than 30% of the assuming insurer’s liabilities attributable to reinsurance ceded by United States ceding insurers covered by the trust if the Insurance Commissioner expressly finds that appropriate circumstances justify a lower level of minimum required trusteed surplus. AB 2734 also reduces the period during which the Insurance Commissioner is prohibited from taking final action on an application for certification as a reinsurer from 90 days to 30 days after posting the required notice concerning receipt of the certification application.

This post written by Kelly A. Cruz-Brown.

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SOUTHERN TITLE INSURANCE COMPANY DECLARED INSOLVENT AND ORDERED LIQUIDATED

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In July of this year, the State Corporation Commission of the Commonwealth of Virginia issued an Order declaring Southern Title Insurance Company insolvent and ordering its liquidation. Among other things, the Order authorized the receiver to use approximately $10 million of its assets “to enter into contracts of reinsurance to pay all policyholder claims.” The Order also set a Claims Filing Deadline and established other procedures and guidelines for the liquidation. Commonwealth ex rel. State Corp. Comm’n v. Southern Title Ins. Co., No. INS-2011-00239 (Va. State Corp. Comm’n July 28, 2014).

This post written by Catherine Acree.

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COMMONWEALTH COURT OF PENNSYLVANIA APPROVES REINSURANCE COMMUTATION AGREEMENT

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On September 4, 2014, the receivership court for the Reliance Insurance Company (“Reliance’) estate (the “Reliance Estate”) approved a settlement agreement allowing the Liquidator to terminate and commute the obligations between Odyssey and Reliance under the reinsurance agreements. The receivership court accepted the liquidator’s representations that the settlement agreement is a fair and reasonable settlement of Odyssey’s obligations to the Reliance estate under the reinsurance agreements and that the payment contemplated under the settlement constituted fair and reasonable value to the Reliance Estate. The Reliance estate will receive an economic benefit amounting to $6,450,000. In re Liquidation of Reliance Insurance Company, Docket No. 1 REL 2011 (Pa. Comm. Ct. Oct. 8, 2014)

This post written by Kelly A. Cruz-Brown.

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FEDERAL COURT REFUSES TO ENFORCE ARBITRATOR’S SUBPOENA DUCES TECUM TO NON-PARTY

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A United States district court in Louisiana recently dismissed a suit brought under the Federal Arbitration Act to enforce a subpoena duces tecum issued in an arbitration proceeding. The district court granted the defendant’s motion to dismiss on two grounds. First, the court held that the amount in controversy requirement for diversity jurisdiction was lacking because the plaintiffs were asserting no claim against the defendant in the federal court action; the plaintiffs sought only the production of discovery documents. Second, the court ruled that Section 7 of the FAA provides for the enforcement of a subpoena duces tecum against a non-party only if the non-party is compelled to testify as a witness before the arbitrator. Because the defendant was not summoned to testify in the arbitration proceeding, the subpoena duces tecum was unenforceable. Chicago Bridge & Iron Co. N.V., et al. v. TRC Acquisition, LLC, No. 14-1191, 2014 WL 3796395 (E.D. La. July 29, 2014).

This post written by Catherine Acree.

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